Will 2017 be the Beginning of the End of the EU?

The UK is not going to leave the European Union. Of course, not. We are inextricably wound up with Europe. In terms of culture, history and geography, we are a European nation. Nick Clegg, British Liberal Democrat politician – 2010 to 2015 in the David Cameron coalition ministry. A special report on the current state of the EU and what could be in store, for the EU in 2017 – post Brexit and Trump and the rise of the EU’s populist movements, by Victor Romain, for Invest Ratings.

What has politics got to do with the forex markets?

In a nutshell…everything. When it comes to the financial markets, the forex markets or foreign exchange markets is one of the most active markets in the world. Investors from all over the world continuously engage in over $4 trillion worth of forex transactions. As a result, political events that may affect forex markets can have dire financial consequences.

Unlike other markets, the forex market is more globally (inter) connected. Therefore, even the smallest event in a tiny corner of the world can have an immediate impact on currency values and exchange rates around the planet.

Global trade affected by Brexit

A great example of political turmoil impacting international financial markets is Brexit. In late June, the United Kingdom voted itself out of the European Union. The negative impact of this decision was far-reaching. It even went beyond the forex markets. It had a truly dramatic effect on the stock markets around the world – within minutes of the result to quit the EU being known.

Sterling goes into freefall, immediately after the Brexit result is known, and has not recovered ever since

The pound sterling went on a free fall and it has not recovered since then. This one event has had a large and lasting effect on the country’s currency. There haven’t been any signs of recovery as there is still a lot of uncertainty as to how this is going work.

Furthermore, the political instability does not make investors feel secure, so for the time being, the currency is down.

Why the rise of anti-EU sentiment and the ‘populist’ movements?

To understand why there is so much anti-EU sentiment around today and the rise of the “Populist” movements – one has to go back in time to understand the fundamental causes of this effect. I.e. The basic history of the EU.

When the (then) UK’s Deputy Prime Minister, Nick Clegg made this (now famous quotation) and observation of his, “The UK is not going to leave the European Union. Of course, not. “We are inextricably wound up with Europe. In terms of culture, history and geography, we are a European nation,” during an interview with Germany’s” Der Spiegel Online,” on 21st May 2012; no one could have foreseen just how differently things would turn out, in the summer of 2015, when the British people voted to leave the EU on June on: 24th June 2016 – just over four years later.

The pollsters got it wrong – the EU ministers had gotten it wrong. All the world’s leading politicians and financial experts had gotten it so very wrong – from the USA to Australia, from New Zealand, to Asia…no one had expected that the unexpected would happen – that the British public would say a resounding “Neyt” to its continued membership of the European Union.

The unexpected had just happened – the UK would be leaving the EU…the previously unthinkable had suddenly become a stark reality. Moreover, it was, for the first time in the UK’s democratic history that such a momentous and an important decision had not been made by the UK’s politicians…but by its people, in a unique referendum, which had been initiated by the UK’s (then) Prime Minister, David Cameron.

The immediate after-shock result of the UK’s referendum result to quit the EU, claimed its first victim, which was the resignation of David Cameron’s premiership of the UK only a few days after the result had been made official. And, when Theresa May became the UK’s (unelected) Prime Minister – the Chancellor of the Exchequer, George Osborne was forced to resign his post.

These were seismic changes to the composition of the UK government and the Brexit result had sent shockwaves around the world – from the international financial markets to the international political arena. A new era was being ushered in, which was to shake up the old “world order” and the established ways of doing things.

It is not my intention to go into the detailed reasons why this had happened. That would take far too long and is, perhaps, best left to people better qualified than me.

Suffice to say…ordinary people had, had enough of the autocrats in Brussels; dictating the UK’s internal policies – as to how things should be done in the UK.

This argument had already been brewing up for a long time – long before the EU became the victim of the mass-immigration and refugee crisis; of the thousands of people fleeing war and famine in the Middle East and Afghanistan – starting in 2014.

The refugee crisis and Germany’s Angela Merkel’s open door policy

It was, I believe the final straw, which broke the camel’s back and had set in motion a chain of political events, which has now spiralled out of control.

However, the root of the problem can, arguably, be traced back to the seemingly unstoppable enlargement of the EU – prior to the refugee crisis.

The rapid enlargement of the EU in the 21st century

The process of the EU’s enlargement is sometimes referred to as European integration. This term is also used to refer to the intensification of co-operation between EU member states as national governments allow for the gradual harmonisation of national laws.

Since its founding in 1955, with just six member states: Belgium, Germany, France, Italy, Luxembourg and The Netherlands, which was then known as the EEC (The European Economic Community) …it has undergone forty years of almost constant and unstoppable enlargement.

The UK joined, in 1973, what was then the EEC, which has now morphed into the EU.

It is also worthy of note that when the EEC was initially formed – Germany was still a divided country – West and East Germany and Belin was still divided in half by the Berlin Wall.

Since then, the EU’s membership has grown to twenty-eight, with the latest member state being Croatia, which joined in July 2013.

However, the most recent territorial enlargement of the EU was the incorporation of Mayotte in 2014. Mayotte being a place, which no one has probably never, ever heard of – never mind knowing where it is located.

Mayotte is an insular department and region of France and is officially named the Département de Mayotte, which is in the northern Mozambique Channel in the Indian Ocean off the coast of Southeast Africa, between north-western Madagascar and north-eastern Mozambique and is an archipelago; consisting smaller islands called islets. (Source: Wikipedia)

However, the EU’s enlargement has now come at a price – many people have now had enough of the EU being too much and too big. It cannot expand endlessly, without resistance from its existing member states and their people – the electorate.

Former Commission President Romano Prodi favoured granting “everything but institutions” to the EU’s neighbour states; allowing them to co-operate deeply while not adding strain on the EU’s institutional framework.

This has been pushed by France and Germany as a privileged partnership for Turkey, membership for which has faced considerable opposition on cultural and logistical grounds.

The largest integration of other (former Central and Eastern Bloc countries) into the EU occurred on 1st May 2004, with the acceptance of membership into the EU fold of: The Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia, and Slovenia, plus two Mediterranean countries…Malta and Cyprus. (Source: Wikipedia)

And, it was, arguably, here – at this point in time that the problems (and the British publics resistance and distain, to EU policies) started, with the UK’s membership of the EU.

Working and immigration restrictions to new EU member states lifted

The cornerstone of the EU’s founding principle was based on the freedom of movement between member states, which also, eventually, included the new member states.

According to the Migration Policy Institute – MPI, “Free movement between all Member States was thus to be guaranteed by May 2011 at the latest for the citizens of the countries that joined in 2004, and by January 2014 for citizens of Bulgaria and Romania.

Only three Member States — Ireland, Sweden, and the United Kingdom — decided to open their borders immediately, the former two mainly because their growing and relatively open economies needed labour, and the latter because its regulated labour market was believed to be able to maintain wages at the collectively agreed upon levels.

Moreover, immigration at that time was not perceived as such a significant threat in these countries, as opposed to in France, for example, where a fictional character named the “Polish Plumber” was used to fuel fears on how skilled French workers were soon to be replaced by a flood of Eastern Europeans willing to work for less.

After the 2004 expansion, Poland was the source of the largest number of migrant workers among all new Member States.

In fact, the number of Poles “temporarily residing” in another EU Member State more than doubled between 2004 and 2007, peaking at around 2 million — at that time a remarkable 5.3 percent of the country’s total population of 38 million.

Lithuania, however, had the largest number of outgoing migrants relative to the size of its labour force, and some areas of the country have suffered from at least a temporary, yet very visible, youth drain.”

(Source: The Migration Policy Institute – MPI: 21st April 2011)

Tony Blair’s ‘Open Doors’ immigration policy

Beyond shadow of a doubt…Tony Blair’s ‘Open Doors,’ immigration policy, for the citizens of the EU’s new, member states played a significant role in tipping the balance of the UK’s Brexit referendum, in favour of leaving the EU.

According to Newsweek Magazine, “It was Tony Blair’s government was to blame for massive EU migration that led the U.K. to demand an “emergency brake” on migrant benefits, the European Commission president has said.

“In 2004, the U.K. did not use the transitional periods that would have allowed it to phase in the right of free movement of the citizens of eight new member states,” Jean-Claude Juncker told the European Parliament on Wednesday. “As a result, over the past decade the U.K. attracted a record number of mobile EU citizens.

n 2004, eight former Communist states, including Poland, Hungary and Czech Republic, joined the EU. Where some other wealthy EU states such as Germany imposed “transitional controls” to temporarily restrict the access of these countries’ citizens to their labor markets, Britain, under the leadership of Prime Minister Tony Blair, did not.

Between 2004 and 2012, the net inflow of migrants from the A8 countries to the U.K. was 423,000. This was a stark contrast to the original estimate of 13,000 migrants per year for a decade. (Source: Business Insider, Deutschland: 29/10/2016)

As a result, over the past decade the U.K. attracted a record number of mobile EU citizens.

Indeed, even where I live, on the coast, in South East England – all the personnel at my local car wash are now EU immigrants; with some of them even from Moldova. Having said that…they all work extremely hard – cleaning the cars to perfection – including mine.

Moreover, all the local taxi drivers are now immigrants – even from countries as far away as Afghanistan. There are very few, if any British persons doing these jobs anymore.

Many years ago, there was a time when I knew all the local taxi drivers waiting on the taxi ranks: as I live in a relatively small, seaside town – especially as I too was a night time taxi driver for a short period of time. Not anymore!

The chronic lack of employment opportunities, for young people in the Baltic States

Recently, I was talking to some young people, who had arrived in my region from Estonia and Latvia and I asked them why they had chosen to come to the UK and, moreover, to my region.

Their answer was as simple, as it was reasonable. They told me that there was no work available for them in their countries and that youth unemployment was at an all-time high.

So, they decided to pack their bags and seek employment in the UK. Because, even working on the farms – picking and packing fruit, 6 days a week, for 12 hours a day (on a minimum wage) was still far better than what they could earn back home in their countries.

And, as my region is known as “The Garden of England”…there are many, many farms in the region, which need people to do the picking and packing, of the huge volumes of the fruits and vegetables, for the UK’s supermarkets and the local shops.

Tony Blair is blamed by the UK’s Phillip Hammond, Chancellor of the Exchequer, for Brexit vote

Just a few days ago, at Davos, the UK’s Chancellor of the Exchequer, Phillip Hammond, told the audience that it was Tony Blair’s failure to control the influx of Eastern European workers into the UK, which fuelled the British public’s anti-immigration views.

According to The Guardian Newspaper, Hammond was quoted as saying, he chancellor said the Brexit vote was not the result of the anti-trade and anti-globalisation feeling that manifested itself in the US presidential race.

“But what there was clearly was a strong strand of feeling against uncontrolled migration. And I lay the responsibility for that squarely at the door of prime minister Blair who failed to impose transitional regime in the UK in 2004.

“So, while other countries in Europe smoothly transitioned the A8 members [Accession 8] and the freedom of movement from A8 members Britain took the full force of the tide in 2004, and that created a public perception which we still haven’t shaken off to this day.”

Hammond said the UK was not anti-migration and that only a minority thought the borders should be completely closed.

“It is very important to the British people that we control our borders, but most of them do not want to use that control to shut the borders, they simply want to have the control,” he said.

The chancellor said departure from the EU and from the single market did not mean there would be no migration. He said Britain would want to attract skilled workers but wanted the ability to control the flow of unskilled, cheap labour.

“What we’ve said clearly is that we cannot accept the principle of free movement,” Hammond said, adding that any EU national could simply change their place of residence from Bulgaria or Romania to the UK. “We can’t accept that anymore.”

(Source: The Guardian Newspaper – Davos: 20/01/2017)

The golden dawning of the EU’s ‘populist’ movements

According to Chatham House, The Royal Institute for International Affairs,  The rise of these parties is often traced to public anxiety over threats to jobs, social housing and the welfare state. Instead, this new report provides convincing evidence that mainstream political parties need to go beyond making the economic case for immigration and begin making the case for cultural diversity.

Populist extremist parties (PEPs) present one of the most pressing challenges to European democracies, says a new report by Chatham House. Parties such as the Front National in France, Sweden Democrats and Austrian Freedom Party continue to rally large and durable levels of support, even among some of the most economically secure and highly educated regions of Europe. Their appeal and the profile of their supporters remain poorly understood.

Matthew Goodwin says:

‘PEPs have spent much of the past two decades exchanging strategies and ideas. This has enabled them to respond more innovatively and effectively than the mainstream parties. Until the mainstream parties begin to exchange lessons and address the actual anxieties of PEP voters – specifically over the cultural impact of immigration and rising diversity – populist extremists will continue to attract significant support, and could find a new generation of citizens increasingly receptive to their message.’

Key findings of the report include: 

experienced more face-to face contact with activist from PEPs than from the mainstream parties.

‘There is no uniform response to PEPs, each strategy comes with risks,’ continues Matthew Goodwin. ‘Engagement and interaction – which focus more heavily on the local arena – offer the best prospects for progress.’

(Source: Chatham House, The Royal Institute for International Affairs. Author: Matthew Goodwin)

Marine Le Pen claims ‘Anglo Saxon world waking up’ as Europe’s far-right parties meet after Trump inauguration

Organisers of the conference in Koblenz, which was held, while Trump had just finished making his inauguration speech, which was billed as a “counter-summit”, said participants would set out their joint “vision for a Europe of freedom.”

Ms Le Pen told cheering crowds: “2016 was the year the Anglo-Saxon world woke up. 2017, I am sure, the people of continental Europe will wake up.

“It’s no longer a question of if, but when.”

Crowds chanted the Nazi era term “Lügenpresse”, which means “lying press” and was named Germany’s “non-word” of 2015, after several major news outlets were banned from attending that year’s far-right conference.

“Yesterday, a new America. Today – hello Koblenz – a new Europe!” said Geert Wilders, the leader of the anti-Islam Dutch Freedom Party.

“The people of the West are awakening. They are throwing off the yoke of political correctness.

The meeting of the Europe of Nations and Freedom group in the European Parliament also featured Matteo Salvini of Italy’s Northern League and Harald Vilimsky, the general secretary of Austria’s Freedom Party, which last year narrowly failed to win the country’s presidency.

“We are experiencing the end of one world and the birth of another,” Ms Le Pen said. “We are experiencing the return of nation-states.”

She claimed the first “real blow to the old order” was June’s vote for Britain to leave the European Union, followed closely by Mr Trump’s shock election victory.

Marcus Pretzell, one of the AfD’s MEPs and Ms Petry’s husband, denied accreditation to German public broadcasters and several other news outlets because he did not like how they reported on its party.

He opened the congress by lamenting the current state of the EU, the Schengen zone and the Euro, as well as claiming that “we have a problem with political Islam.”

The European elections of 2017, which could destroy the EU

With a spate of elections coming up this year, across the EU – it seems that the populist parties could well be on the cusp of certain victory. Should they win (and there is now a very good chance that could)…this could be the death knell of the EU as we know it today.

The UK’s Daily Express writes, “The Brexit vote and Trump victory have fuelled a wave of anti-establishment sentiment that could see several key elections won by right-wing populist parties.

Politicians such as France’s Marine Le Pen and the Netherlands’ Geert Wilders are all in with a fighting chance of winning power in coming months.”

Victories for parties such as Le Pen’s Front National and the German AfD could spark a slate of Brexit-style referendums which might spell the end of the EU.

After decades of a liberal world order, these right-wing parties could also put an end to multiculturalism and open immigration in Europe.

Far-right leader Geert Wilders – who is currently on trial for hate speech and discrimination – has been tipped to become the Netherland’s next Prime Minister.

He has vowed to call a referendum on Dutch EU membership and to end immigration from Muslim countries.

But he faces difficulties because the Netherlands relies on coalition governments and most political parties have sworn not to work with him.

The latest poll from Peil forecasts Mr Wilder’s Party For Freedom to win 33 out of 150 parliamentary seats, more than any other party.

Angela Merkel will run for a fourth term as Chancellor but faces competition from the anti-EU Alternative for Germany (AfD).

Ms Merkel has faced heavy criticism over her open-door migrant policy, and has seen AfD make gains in local elections this year.

While a fourth Merkel term would represent a continuation of the current status quo, a shock victory for AfD would see the reintroduction of German border controls, strict sanctions on Muslims and a referendum on EU membership. (Source: The Daily Express: 29/12/2016)

Was Ms. Merkel forced to run for a fourth term?

Of note – I suggest that Angela Merkel has rather been forced to run for a fourth term in office, in order to try and see off the rise of the German populist party the AfD. I do not believe she decided to run for a fourth term by choice.

Could 2017 herald the beginning of the end for the EU?

That, as they say is now the 64-dollar question. After Brexit and the also (unexpected) win of Trump, becoming the 45th president of the USA, all the bets are now off.

Donald Trump has hailed the Brexit vote as possibly being a ‘great thing.’

In a recent interview with The Times, he said, U.S. President-elect Donald Trump said that Brexit would turn out to be ‘a great thing and other countries would follow Britain out of the European Union,’ but promised to strike a swift bilateral trade deal with the United Kingdom.

Speaking in an interview with The Times of London newspaper, five days before his inauguration, Trump described himself as a big fan of Britain and endorsed last year’s vote to leave the European Union.

“I think Brexit is going to end up being a great thing,” Trump said. “I’ll tell you, the fact that your pound sterling has gone down? Great. Because business is unbelievable in a lot of parts in the UK.”

Trump’s election campaign seized on the Brexit vote as an example of disillusioned voters rising up against the political establishment, and he forged a friendship with leading Brexit campaigner Nigel Farage – a fierce critic of Prime Minister Theresa May.

(Source: Reuters: 15/01/2017)

2017 looks like it is going to be a seriously interesting year. And, it’s only just begun.

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